Yes, in most cases, unsecured debts like credit card bills, medical bills, and personal loans are discharged when you file for bankruptcy under chapter 7. Not only are they discharged, but also, when you file for bankruptcy, you get an automatic stay, which prevents all creditors from making any collection attempts or harass you in any way.
However, not all loans get discharged. Few loans like domestic support obligations and student loans must still be paid in full even after filing for bankruptcy. Processing all kinds of discharge takes about 2-6 months.
Credit Card Management – How it works for chapter 7
There are multiple ways a credit card company can put you in more debt like –
- Increase your rate of interest
- Charge late fees
- You can also be charged for over-balance
- Transfer your account to a debt collection agency
- Reject your new application for a credit card
- To claim repossession, they can even file a debt collection lawsuit
All attempts by the collection agency are legal and they can call you at any time to claim the money due. To prevent this, it is important to file for an automatic stay which will put all their attempts at a pause until the bankruptcy is in process or the stay is dismissed by the court.
It is important before you make a decision to file for bankruptcy, you consult with an experienced attorney who can guide you on whether the path chosen for filing for bankruptcy under chapter 7 is apt and best suited for your case or not. If you do decide to go ahead, be informed how the automatic stay protects you-
- Stops all harassment calls from the creditors
- Wipes out all unsecured credit card debts and dues
- Stops wage garnishment
- Lowers your credit score
Can I file for bankruptcy under chapter 7?
Anyone can file for bankruptcy, but not all are successful always, to qualify for bankruptcy under chapter 7, you must pass a means test. A means test is a base for qualification, wherein you’re your average monthly income is calculated, which must be below the state median income. If your income exceeds the state median income, then you do not qualify for bankruptcy under chapter 7.
How do you get rid of credit card debts under chapter 13 bankruptcy?
When you file for bankruptcy under chapter 13, you will enter into a repayment plan wherein you will have to pay back your debts in small amounts within a time-span of 3-5 years. This will give you sufficient time to pay back your debts. Mostly, after you have paid off a certain sum of money to the creditors, the remaining credit card debt will be discharged.
Situations when your debt discharge is denied
Under certain circumstances, the creditor appeals to the court to prevent discharge for certain debts, also known as the “adversary proceeding”. The common 2 reasons for the same are –
- Purchase of luxury goods
- Payment from credit card for non-dischargeable debts